Fitch Affirms Regional Transportation District, Colorado’s Private Activity Bonds; Outlook Stable
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The following is from Fitch Ratings on
Fitch Ratings has affirmed the 'BBB-' rating on approximately
The Rating Outlook is Stable.
The proceeds of the series 2010 bonds were loaned to DTP to pay a portion of costs of the
Rationale
The rating reflects the continued progress on the project to date with completion currently expected well in advance of the project long-stop date. Once operational the project will benefit and will receive a stable revenue stream from a high quality revenue off- taker in RTD (sales tax 'AA+'/Outlook Stable, FasTracks 'AA'/ Outlook Stable and COPs 'A'/Outlook Negative). In addition, the project's operations are backed by an investment grade operator in the form of
Key Rating Drivers
--Adequate Construction Package: The project's construction contractor is a joint venture between
Completion Risk: Midrange
--Resilient Availability-Based Payment Structure: DTP's indexed availability-based revenue stream from a high investment grade credit-quality grantor provides for a predictable and resilient revenue stream, and is fully insulated from volume and price risk. The penalty deductions mechanism incentivizes the concessionaire and its operating contractor to provide adequate service; concession termination is limited to severe underperformance.
Revenue Risk: Midrange
--Exposure to
Operation Risk: Midrange
--Infrastructure Risk Well Mitigated: A long debt-free tail before concession expiry combined with relatively well-defined hand back provisions combined with the full pass-through of life cycle risk to a creditworthy operating contractor ensure that bondholders are well protected against hand back and life cycle risk.
Infrastructure and Renewal Risk: Midrange
--Adequate Features Support Debt: Bonds are fixed-rate and mature in 2041 and, although the debt service profile rises slightly over time, no refinance risk exists. The six-month principal and interest debt service reserve fund and 1.10x debt service coverage ratio and 1.20x loan life coverage ratio lock up covenants are considered by Fitch to be consistent with a midrange debt structure attribute.
Debt Structure: Midrange
--Moderate Debt Service Coverage: DTP's high leverage is typical for a project of this nature, and it results in a moderate DSCR profile, averaging 1.38x in the concessionaire's base case. This is in line with investment-grade guidance for availability-based projects.
Rating Sensitivities
--Unsuccessful completion and integration of the
--Failure of DTP to receive a relief event or uncompensated damages related to vacant possession of land and grantor proposed scope changes;
--A notable deterioration in project party relationships leading to a greater number of disputes being escalated;
--Significant payment deductions during the construction and operating phases that reduce coverage levels below current projections for a sustained period;
--Operating and capital expenditures during the operational period significantly higher than projected;
--Conclusion of construction on time and to the revised budget followed by successful interfacing with the wider regional transit network and a smooth start to the operational phase could result in upward rating migration.
Security
The PABs are secured by the base annual service payment (or availability payment) made by RTD which is derived from sales tax revenues, and is subordinate to RTD's outstanding senior and FasTracks bonds and other required deposits. This payment source is voter approved and included in
Credit Update
Significant progress has been made on all three pieces of the project: East Corridor; NWES; and Gold Line since Fitch's last review. As part of the agreement between RTD and DTP following the scope change for the additional station near the airport, the revenue commencement dates for each of the three phases remains as originally contemplated, however, the DBJV is not required to achieve substantial completion on each part until the updated completion date. These dates are as follows: East Corridor
The NWES portion of the project is the only piece that is not projected to be completed by the updated completion date. The delay is attributable to lack of approval from third parties on design elements of the NWES portion of the project, which appear to be RTD risks. DTP has not filed for a relief event yet, however, it likely will in time. In a worst case scenario, if the delay was not designated a relief event by RTD the DBJV would be responsible for liquidated damages. Fitch notes the LD's are supported by a parent company guarantee from Fluor among other security.
Fitch understands that the relationship between DTP and RTD remains generally good with no issues currently escalated to the dispute resolutions panel. There have been no significant scope changes since Fitch's last review. The next significant item of discussion between DTP and RTD is expected to be O&M and lifecycle compensation for the new station near the airport. Only a change in construction cost/schedule have been agreed upon in relation to the new station, O&M and lifecycle considerations are still up for discussion.
RTD has provided everything required with respect to permits and rights of way. In addition, project design is estimated to be 98 percent-99 percent complete with the remaining 1 percent-2 percent expected to be completed as part of the construction process. There are currently 13 change orders pending with an estimated value of
Fitch affirmed RTD's outstanding closed senior lien at 'AA+', the FasTracks bonds at 'AA', and the certificates of participation at 'A' (see
Additional information is available at 'fitchratings.com'.
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